FSCS says it interjected in Harlequin court case on behalf of compensated investors

The UK’s Financial Services Compensation Scheme said that it became involved in a Caribbean Court case involving the bankrupt holiday resort company, Harlequin Property (SVG), last month because it has thus far paid “in excess of £98m in compensation to over 2,170 consumers in relation to Harlequin” and as a result, now has a duty to “pursue recoveries” on these consumers’ behalf.

The FSCS added, in a statement, that it believed that these consumers’ interests would not be best served if, as the developer behind Harlequin Property (SVG) has requested, the St Vincent and the Grenadines court gave HP (SVG) more time to put forward its plan for salvaging the company, and “informed the court accordingly”.

The statement was issued in response to a request for the FSCS’s comment about a petition signed in the past week by some 649 mostly UK-based HP (SVG) investors, which called on the FSCS to “stop interfering” in the ongoing court case, and “allow HP (SVG) investors the opportunity to vote on the [developer-backed] Proposal, [and thus] potentially avoid bankruptcy”.

The FSCS told International Investment that it has not yet received the investor petition, and therefore was “unable to comment on that point”.

Included with the petition was a survey, which found that 726 of 758 HP (SVG) investors who responded – or 96% – agreed with the statement that the FSCS “should stop interfering in the Proposal process, and allow investors the opportunity to avoid bankruptcy”, according to Harlequin Hotels & Resorts, the developer behind HP (SVG), which was involved in organising the petition and the survey.

As reported, the developer is putting together a plan to revive the HP (SVG) flagship development, Buccament Bay, on behalf of a significant percentage of the investors, who believe they would stand to recover more of their original investment if this plan were given a chance to succeed than they would if, as seems increasingly likely, the business is merely liquidated.

Harlequin founder and chairman David Ames said it was his intention to put the US$11.5m the company won in a recent court case – minus legal fees and other costs – towards restoring the Buccament Bay development to “full use for the benefit of Harlequin Property (SVG) investors”, who, he explained, would be handed ownership of it as part of the deal. Four as-yet-unnamed hotel management companies, he said, had expressed an interested in managing the resort on behalf of the Harlequin investors.

Ames argues that Harlequin investors account for the vast majority of creditors in the development, and that for this reason, their voices should be heard.

In total, there are said to be around 3,600 individual investors in HP (SVG).

An organisation claiming to represent around 2,000 of these investors, which calls itself the Pro-Harlequin Investors’ Group, has called for investor support for the proposal to attempt to revive the Buccament Bay development rather than having it placed into liquidation. It wasn’t immediately known how many, if any, of these supporters were involved in the petition and recent survey.

FSCS cites trustee’s assessment

In its statement regarding its action in the St Vincent Court, the FSCS noted that the trustee of the Proposal to revive the resort, Brian Glasgow of KPMG, had told the court that he “did not consider that Harlequin would be able to put together a viable proposal for the rescue of the firm, and accordingly opposed the company’s third request for an extension of time in which to submit a final proposal”.

“FSCS agreed with KPMG’s position, and informed the Court accordingly,” the FSCS said.

“The court, having also considered submissions from Harlequin representatives, decided that no further extension should be granted.”

Response to FSCS

In a statement responding to the FSCS’s explanation above, Harlequin maintained that the FSCS’ s affidavit to the St Vincent court had said that it was pursuing approximately £21m from HP (SVG), “not £98m”, which amount, Harlequin said, represented only around 10% of the value of all creditors.

“Harlequin investors account for £170m, and yet the FSCS has not meaningfully engaged with them or heeded their concerns,” it added.

Harlequin said it also understood that the FSCS’s St Vincent legal representatives had convinced the St Vincent court to conclude in its judgment that the majority of HP SVG investors were against having the right to vote on the proposal to revive the Buccament Bay resort rather than liquidating the business, even though “812 investors to date have signed a petition supporting the appeal”.

It said the FSCS’s characterisation of the negative conclusions about the Buccament Bay plan’s trustee’s assessment of the viability of the plan was “also wrong”.

“Many existing investors feel that the FSCS’ commercial goals are taking precedence over their own financial security and the FSCS’ statement supports that suspicion, which is worrying and disappointing. We hope for the sake of Harlequin investors that the FSCS will change tack when they receive the petition tomorrow.”

Harlequin said it would soon be delivering to the FSCS a petition it said has been signed by more than 600 investors, who ask the compensation scheme to “stop interfering” in the Harlequin Property court case, so that they can be allowed to vote on the decision as to whether the business should be liquidated or given a chance to revive as is being proposed.

Setback

As reported, the Harlequin plan was dealt a setback last month when the court refused to grant the developer more time to put its plan together — thus forcing it into all-but-certain bankruptcy. The company said it planned to appeal the decision. Harlequin entered bankruptcy on on 24 February.

A week earlier, Harlequin founder Ames had been charged by the UK’s Serious Fraud Office with three counts of fraud in connection with his business. At the time, Ames denied all the charges and said he looked forward to clearing his name.